Obamacare Court fail could hit pharmas with "double whammy"

If the Supreme Court finds the “individual mandate” provision of the Affordable Care Act unconstitutional, as now seems surprisingly possible, the biopharma industry could be looking at a worst possible outcome situation.

The Court's five-justice conservative-libertarian majority was frequently relentless in their questioning of the mandate at last week's marathon hearings, leading many Court Kremlinologists to put the odds in favor of partial or total repeal. The court could void the mandate, which would blow up the rationale on which PhRMA negotiated $100 billion in drug discounts for federal programs, or it could void the entire law. Either of those outcomes was regarded as unlikely before the hearings. Not anymore.

“PhRMA negotiated an excise tax recognizing it was a give-back taking into account that the industry would likely benefit from that,” said Acorda Therapeutics president and CEO Ron Cohen, MD. “If the individual mandate gets struck down, now you've got a double-whammy, because those thirty-million people aren't going to show up and pay for innovator drugs. So we're still paying into the system, but we don't have the benefit of people having access to medication, which I would add costs the system.”

If the Court were to throw out the whole law—as swing vote Justice Kennedy suggested he might favor at one point—the industry would, at least, stand to recoup most of that $100 billion, a big boon in the near term for larger companies with high exposure to Medicare, some of which are spending up to 5% of their revenues to fill in the Medicare Part D “Donut Hole,” per the terms of the ACA deal.

Estimates of how many uninsured the ACA would bring into the system vary—30 million is an average figure. Similarly, estimates of how much gutting the mandate would boost the uninsured vary, from 12.5 million (Rand Corp.) to 24 million (the liberal think tank Center for American Progress). Removing the mandate but preserving the requirement that insurers offer coverage regardless of pre-existing conditions would jack up premiums anywhere from 2.4% (Rand Corp.) to 40% (CAP), prompting some employers to cease offering insurance, which could push more Americans into the ranks of the unemployed.

That's many fewer Americans seeing their doctors, getting prescriptions and having them filled because they're covered.

"Pharma got a pretty good deal in the ACA because Bill Tauzin was at the table," said John Kamp, executive director of the Coalition for Healthcare Communication. "If the ACA now fails, the political poker begins anew. When you're holding three of a kind in the first round, you'd rather play out the hand than throw them in."

Moreover, a failure to arrest rising healthcare costs and address the problem of tens of millions uninsured could only increase the cost pressures on the health industry—pressures which have fallen disproportionately on pharmas in the past, since drug costs, though a sliver of the healthcare cost pie, are the price consumers see the most of.

“There's going to be a lot of pressure to resurrect certain parts of what's now in the ACA, but maybe in the worst way,” said Cohen, citing provisions on biosimilars and the omnipresent threat of price controls. “Absent the massive, multi-factoral ACA we have now, there's going to be huge pressure to control costs, and there's a risk we'll see cherry-picking, only resurrecting those aspects that are negative.”

The law was designed to speed some seismic changes in healthcare delivery—adoption of electronic medical records, for example, or the shift away from compensating doctors and hospitals based on quantitative measures and towards a more qualitative, outcomes-based system of incentives. Those shifts were in motion, however ploddingly, well before President Obama took office, and will continue regardless, if more slowly.

Much of the ACA is made up of pilot programs, more or less, aimed at “bending the curve” on healthcare costs. As Sen. Sheldon Whitehouse (D-RI) told The Washington Post last week: “We are on the road to a different delivery system … The Affordable Care Act provides mechanisms for making that happen, changing the incentives. What it does is launch a whole array of pilots and a new innovation center that has the ability to take successful pilots and deploy them nationwide.”

Were the whole law voided, many of these programs would be reintroduced by their Congressional sponsors and implemented in piecemeal fashion, but wonks fear there would be no systematic, throw-everything-at-the-problem effort to find solutions to spiraling healthcare costs, at best, for another generation.